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A mere 2.5 days in Iceland in Aug with 13 and 14 yr old boys. Help!

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Hi All:

We're taking advantage of the IcelandAir layover in August at the tail-end of a 3-week trip to visit the family in Europe.

When we travel, we love to put down roots and are not big-tour types. But I know this short of a trip is going to be a challenge to do our normal type of travel and would love to get advice and suggestions.

1) I've been on the IheartRejkavik blog and plan to book her on Day 1!
2) Has anyone stayed at the Loft Hostel by chance? Looking at a quad room possibly.
3) Wondering if we should stay the last 2 nights somewhere in a small town on a peninsula or on the ring road?
4) we love great good and wine (which often means cities), but also hiking, fishing, horseback riding, exploring, which takes me back to question #3.
5) Definitely do not want to fight the tourists at the Blue Lagoon but will want some sort of Geothermal pool experience.

I know we will come back sometime, but don't want to short-change our kids, particularly, with our distaste of fast-paced travel.

We appreciate any and all advice!

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